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These Are Americans' Top 3 Retirement Concerns

By Kailey Hagen – Jun 7, 2020 at 5:54AM

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Worried about retirement costs? You're definitely not alone.

Retirement conjures as many worrisome thoughts as it does exciting ones, largely because it's such a big expense. It's not unreasonable to think you could need $1 million or more, and some people may even need $2 million to live comfortably during retirement. Saving that much is no easy task, and even if you do accomplish it, there's no way to be sure you have enough to last the rest of your life. 

These fears are reflected in Americans' top three retirement concerns, as reported by SimplyWise. I discuss each of them in detail below, along with tips you can use to combat those fears and feel more confident in your retirement preparedness.

Woman with pen and notebook thinking

Image source: Getty Images.

1. Social Security drying up

About 56% of surveyed workers say they are afraid Social Security will dry up, leaving them to fund retirement all on their own. This belief has its origins in Social Security's dwindling trust funds, which the latest Social Security trustees report projects will run dry in 2034. Some more recent studies suggest the trust funds might be depleted this decade, due to the added strain the COVID-19 pandemic is placing on the program.

But none of these studies suggests that Social Security is going to disappear completely, at least not within the next few decades. Even if the government didn't intervene at all, Social Security would still be able to pay out approximately 76% of benefits to retirees and their families until 2090, according to the latest trustees report. And it's possible the government will take steps to ensure the program's solvency for future generations. Proposed solutions so far have included raising Social Security tax, raising the threshold on income subject to Social Security tax, and raising the full retirement age (FRA).

We don't know what the final solution will look like yet, or exactly how large of a toll the pandemic will have on Social Security, but you should be able to count on some money from the program, even if it doesn't go as far as it does today. You can create a my Social Security account to estimate your benefit at different ages based on your work record, but know this could change over time.

If you're worried about Social Security being worth less in the future, you should prioritize saving for retirement as much as you're able to right now, and do what you can to increase your income today. This will give you more money to put toward retirement and it'll also net you larger Social Security checks in retirement, because your checks are based on your income during your working years. Working for at least 35 years and delaying Social Security until your FRA -- 66 or 67, based on your birth year -- or beyond can also increase the size of your monthly checks.

2. Not having enough money to cover basic expenses

Approximately 49% of surveyed workers say they fear outliving their savings, and 44% say they are worried about their ability to pay their daily living expenses in retirement. Both of these things are essentially getting at the same issue, which is not being able to save enough money for retirement.

It's a tricky problem, because it's hard to know exactly how much you'll need for retirement. There are too many variables involved. The best thing you can do is estimate a little on the high side. Plan for a long retirement, unless you have reason to believe you won't live a long life, and figure a little high on your estimated living costs. Don't forget to account for inflation, as this will drive up living costs over time. Three percent per year is a good estimate. 

When planning for your living expenses, you can use your current budget as a baseline, but know your spending habits will likely change in retirement. Some items in your current budget, like saving for retirement, will disappear, while others, like healthcare, will likely rise as you age. Once you have a rough estimate of your annual living expenses, you can add the cost of any big-ticket purchases or travel plans to figure out roughly how much you need.

As for actually saving enough each month, hopefully you can do this by making some small changes to your current spending habits to free up more cash for retirement. Take advantage of a 401(k) match if your company offers one so you don't have to save for retirement all on your own. If that's not enough, you might have to rethink your retirement plan. Working longer gives you more time to save and allows your investments to grow for longer while simultaneously reducing the length -- and therefore, the cost -- of your retirement.

3. Paying for healthcare

More than two in five workers surveyed reported concerns about healthcare costs in retirement. This is not unfounded, given that even Fidelity's optimistic estimates of the cost of healthcare in retirement put it at $285,000 for a 65-year-old couple who retired in 2019. On the other end of the spectrum, HealthView Services puts retirement healthcare expenses at over $600,000 for a 65-year-old couple. Of course, a lot of this depends on how healthy you are in retirement. Someone with a lot of chronic health problems can expect to spend more than someone who is relatively healthy. 

But you can't just assume you won't face high healthcare costs in retirement based on your current health. An injury could make it difficult for you to perform daily activities and may require you to hire someone to assist you, for example. So it's smart to prepare for high healthcare costs, even while doing all you can to stay healthy.

Make sure you have adequate health insurance to reduce your out-of-pocket costs. Medicare will likely be the foundation of most retirees' insurance coverage, but it still carries its own expenses and it doesn't cover everything. A Medicare supplement insurance policy can help fill in some of those gaps. You should also look into dental coverage. If you don't want to pay for a traditional dental insurance policy, explore dental discount policies. These have a monthly fee and come with a card you can swipe at your dentist's office to score discounts on common procedures.

You can also save for health expenses in a health savings account (HSA). If you have a high-deductible health insurance plan -- one with a deductible of $1,400 or more for individuals or $2,800 or more for families -- you may contribute up to $3,550 (individuals) or $7,100 (families) in 2020 to an HSA. Money you put in an HSA reduces your taxable income for the year and if you use it for health expenses, you won't pay taxes on it at all.

It's normal to worry about how you're going to cover expenses in retirement. This isn't always a bad thing if it encourages you to be proactive and take some of the above steps to prepare for your retirement. Check in with yourself at least once per year to make sure you're still on track, and if you're not, see if you can make small adjustments to get back where you want to be.

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